We were wrong previously about the likelihood of Provenge showing good data in IMPACT but that’s fine because we believe in the long run our conservatism will save us more than it hurts us. There will be plenty of investing opportunities with better risk-reward profiles than Dendreon was presenting before IMPACT’s top-line results came out. That being said, now that the odds of future Provenge FDA approval look very high, shares of Dendreon are well undervalued at a $21 and change share price according to our model.

So what is Dendreon worth now? To be conservative, lets focus only on Provenge and largely ignore Dendreon’s other pipeline assets like Trp-p8 and Neuvenge (lapuleucel-T). These assets do have real value but for simplicity’s sake, in our model we gave these assets a value of $80 million and that’s all we’ll say about them for now. Since Provenge will be the driving force behind Dendreon’s share price for a long while, lets focus only on it right now.

There are several different models that we like to use when valuing drug developers depending on how mature their pipeline or commercialized drugs are. For Dendreon, lets present a relatively easy to display discounted cash flow model. Here are the inputs into the model:

• First full year of Provenge sales: 2011

• Number of initial eligible Provenge patients: in U.S 102,400 metastatic hormone-refractory patients (Dendreon’s estimate) and in European Union 80,000 (our estimate)

Slide taken from a Dendreon presentation showing Provenge’s market opportunity

• European Union Provenge royalty rate: 25% of sales

• Cost of goods sold: 25%

• Discount rate used for net present value: 14%

• Odds of Provenge eventual approval (and staying on the market once approved): 90%

Below is our model of how Dendreon’s Provenge U.S. sales could ramp up if it is approved. Trying to model sales of a new paradigm oncology immunotherapy such as Provenge in an indication such as late-stage prostate cancer with no existing rival therapies will likely lead to a wide variance between our model’s wild-ass guess of Provenge sales and reality but we are aware of that fact and have built in multiple layers of conservatism into our estimates.

We used our general knowledge and data from IMS Health about the prescription growth rates and trends for newly FDA-approved oncology therapies as the basis for our model. We adjusted the model as best we could for specific information Dendreon has disseminated publicly as well as for how prostate cancer treatment rates of targeted and other advanced therapies (non chemotherapeutics) have performed in solid tumors like breast cancer, lung cancer, and colorectal cancer. As we said just stated in the previous paragraph though, our model could easily differ significantly from the reality of Dendreon’s situation with Provenge but we still feel comfortable making investing decisions based upon it because of the conservatism we embedded into the model and the multiple sensitivity analyses we ran as well (we’ll add those into this article when we have time).

Here is how we modeled Provenge U.S. sales ramping up following a mid to late 2010 FDA marketing approval:

Provenge U.S. sales and expenses estimate (click image for larger version)

A couple of quick notes about this portion of the model:

1) Even after the approval of Provenge, we still apply a “90%” risk adjustment to all future Dendreon cash flows in case something unexpected pops up (safety issues, manufacturing issues, etc) and Provenge had to be removed from the market. This is just another way of saying that we aren’t 100% sure that the future cash flows that we predict will occur with Provenge will occur.

2) We assume that Dendreon will have few problems in scaling up its Provenge manufacturing operations but if there are issues in this regard, we feel that we have captured them in our risk adjustment to its cash flows. It’s worth pointing out that this risk adjustment is on top of the discount rate that we apply to our modeling of Dendreon’s future cash flows

3) We modeled in a linear $200 million a year in Dendreon research and development spending from 2011 to 2019. This estimate will undoubtedly be high in the early years but if Dendreon chooses to start up multiple drug development programs, it could easily be hit in the later years.

4) We assume that in 2018 (in the U.S.) and 2019 (in the E.U.) new competitors to Provenge will emerge that will eventually completely usurp Provenge either through the expiration of some of the key Provenge patents and the entrance of “generic” competitors or through competing branded therapeutics with superior efficacy profiles.

From an old Dendreon 10-k (not necessarily only discussing Provenge):

“Our issued patents expire on dates from May 22, 2007 through July 17, 2018″

5) We modeled in a relatively high 25% cost of goods sold for Provenge to account for its individualized manufacturing process. A small molecule drug would have a much lower cost of good sold (sometimes even around 10%) for example.

6) We priced Provenge at $35,000 for a course of therapy, which is below the wholesale acquisition cost for a course of treatment for most targeted therapies (depending on the indication) that Provenge will be lumped in with. We realize that Dendreon has stated that Provenge will sell at a premium to some biologics for a course of therapy but we just have no idea which biologics they are referencing and in which indications (for instance Avastin is dosed differently in different indications)

Dendreon intends to out-license Provenge outside of the U.S. Here is our model of Provenge sales and Dendreon’s royalty revenue ex-U.S.:

Provenge E.U. revenue and expense estimates (click image for larger version)

1) We penciled in a simple 25% royalty rate to Dendreon on sales of Provenge. This is highly likely to significantly understate what Dendreon will be able to get in a partnership deal for Provenge outside the U.S.

2) We have E.U. revenue from Provenge starting up in 2012 and not 2011. This owing to the fact that Dendreon or its commercialization partner will have to not only go through a full EMEA regulatory review but also work out separate reimbursement in the E.U. countries.

3) We assumed a slower uptake of Provenge in the E.U. and a smaller overall market share in hormone-refractory prostate cancer in the E.U. owing to a different doctor practices and reference pricing and reimbursement issues in some of the E.U. countries.

Admittedly we are being a little lazy with the ex-U.S. portion of our model by not adding in any upfront cash and regulatory and sales milestone payments that Dendreon will almost certainly receive. This cash will help mitigate the need for more equity financings until Dendreon can become cash flow positive in 2011 .

We also did not model in revenue from Provenge outside of the U.S. and E.U. Places like Japan, Canada, and Australia are major pharmaceutical markets though. We don’t model in revenue from these places for two reasons: A) it adds in a little bit of extra conservatism into the model and B) as inaccurate as our Provenge U.S./E.U. sales models may be, we at least have some defensible figures backing our estimates. Trying to estimate sales and royalty rates for Provenge from these places just isn’t something that will add much to our model at this time and our estimates are likely to be even more inaccurate than the rest of our model may be.

Below is our model of Dendreon’s combined U.S. and E.U. Provenge revenue and risk-adjusted discounted cash flow.

Full Provenge rNPV Cash Flow Model

Ok, lets explain this model a little fuller and then go into some of the alternative and informal analyses we tried to see if our Dendreon (Nasdaq: DNDN) valuation model sounds reasonable…..

1) With Dendreon bringing in revenue from Provenge until 2019, we come to a $2.3 billion risk-adjusted, after-tax, net present value of Dendreon’s cash flows.  We add in the $80 million that we believe an acquirer would pay for the rest of Dendreon’s assets and then ignore the $85 million worth of convertible notes Dendreon has because we assume that these notes will convert into shares.

2) At the time of this cash-flow analysis Dendreon had a market capitalization of around $2.1 billion and with the convertible notes ended 2008 with around 98 million shares outstanding. Dendreon was trading at around $21.65 when we recommended buying shares (April 27) and had an intrinsic value of approximately the same figure.

3) Most profitable biopharmas that are still growing rapidly have share values roughly around 8 times their trailing annual sales. At year five in our model (2015), we have predicted Provenge pulling in a little more than $2 billion in revenue and at an 8x P/S ratio this gives us a $16.4 billion valuation for Dendreon. That sounds high to us considering the market capitalization of other biotechs but we’re using a 8x P/S ratio considering the peer group comparisons below:

P/S ratio of profitable biotechs

The fastest growing peers have P/S ratios of 8x or more but the reality of the situation is that most of Dendreon’s closest potential peers (Millennium Pharmaceuticals, ImClone Systems, Pharmion, PDL BioPharma, etc) have been acquired or broken up over the past five years so there are few close peers to compare it to for valuation purposes aside from Alexion, Regeneron, and BioMarin (and some of these peers are not profitable yet). Nevertheless, we feel that this 8x P/S ratio gives us a very rough approximation of what Dendreon could be worth in 2015.

4) Alternatively, if we tried valuing Dendreon based upon our prediction of its 2015 cash flows and applied a 15x multiple to its 2015 risk-adjusted, after tax cash flows of approximately $330 milion, we get an approximate $5 billion valuation for Dendreon.

5) Our P/S and C/F valuation methodologies have obviously come up with widely disparate values for Dendreon. We are fine with this as we know that no valuation model is going to have much forecasting accuracy so many years out with such a unique treatment as Provenge.

If we take the midpoint of our $16.4 billion 2015 P/S valuation for Dendreon and our $5 billion 2015 C/F valuation for Dendreon this gives us a $10. 7 billion 2015 value for Dendreon. If we assume an average of 5% share dilution per year until 2015, this gives us 125 million shares outstanding for Dendreon at 2015.  Therefore, if our estimates are a reasonably accurate model of what will happen with Provenge then this would mean Dendreon shares could be worth approximately $85 per share around 2015.

If we require a 13% minimum annualized rate of return to make investing in near-commercialization stage biotechs like Dendreon a profitable endeavor, then we would be happy selling shares of Dendreon at around $46 per share if its shares spike that high in the coming months. The reasoning behind this is that even though the difference between $46 a share and $85 a share is quite large, once Dendreon shares are worth more than the mid-$40s, then we couldn’t achieve our 13% annualized rate of return goal with Dendreon shares anymore.

Of course we will always be updating and refining our model as new information comes out but if there is no new information that gives us the opportunity to re-evaluate our price target for Dendreon shares, in the near-term the $40s is where we would start to consider recommending a sell of Dendreon shares if there are alternative good investment opportunities out there. Otherwise we hold until Dendreon shares get closer to the $85 range.

continued….

Ever wondered how well the (bio)pharmaceutical IPOs of the 21st century have performed since going public? We have compiled the data on all 86 drug developers who have joined the U.S. stock markets via the IPO route* since 2000.

And the results? Not pretty. Despite a few success stories, these 86 drug developer IPOs are down an average of 44% through the first quarter of 2009. Ouch!

Here is the data:

• 86 total (bio)pharma IPOs from 2000 through Q1 2009

• 15 of these IPOs are trading above their IPO price

• 5 of these IPOs have seen their share price more than double since going public

• The two highest returns are from Acorda Therapeutics (Nasdaq: ACOR) which is up 230.2% since it 2005 IPO and Auxilium Pharmaceuticals (Nasdaq: AUXL) which is up 229.6% since its 2004 IPO

• The average returns from these 86 IPOs based upon each of their IPO offer prices until March 31, 2009 is –43.7% (ouch) and even if Dendreon’s post Q1 09 share price trebling is included, the average IPO returns from the drug developers is still –42.0%.

• 18 of the drug developer IPOs are down at least 90% and 34 are down more than 80% through the first quarter of this year.

• The last drug developer to do an IPO was Biohart (OTC: BHRT) in February 2008

Below you will find charts of the performance of biotech and pharmaceutical company IPOs organized by IPO year (click on each image for a larger version)**

2009: 0 IPOs (through the first quarter)

2008: 1 IPO

2007: 17  IPOs (see two charts below)

Molecular Insight Pharmaceuticals, Synta Pharmaceuticals, 3SBio, Optimer Pharmaceuticals, Tongjitang Chinese Medicines, Orexigen Therapeutics, Pharmasset, NeurogesX, Biodel

Eurand, Amicus Therapeutics, Jazz Pharmaceuticals, China Shenghuo Pharmaceutical Holdings, Sucampo Pharmaceuticals, MAP Pharmaceuticals, NovaBay Pharmaceuticals, ARYx Therapeutics

2006: 14  IPOs (see two charts below)

Altus Pharmaceuticals, Acorda Therapeutics, Alexza Pharmaceuticals, Targacept, Cleveland BioLabs, Osiris Therapeutics, Warner Chilcott

Trubion Pharmaceuticals, Cadence Pharmaceuticals, Achillion Pharmaceuticals, Catalyst Pharmaceutical Partners, Emergent BioSolutions, Obagi Medical Products, Affymax

2005: 8 IPOs (see one chart below)

ICAgen, Threshold Pharmaceuticals, Xenoport, Gentium, Advanced Life Sciences Holdings, Sunesis Pharmaceuticals, Avalon Pharmaceuticals, CombinatoRx

2004: 16 IPOs (see two charts below)

Alnylam Pharmaceuticals, Inhibitex, Metabasis Therapeutics, Momenta Pharmaceuticals, Idenix Pharmaceuticals, Auxilium Pharmaceuticals, MannKind, Theravance

2003: 3 IPOs (combined into 2001 chart below)

2002: 3 IPOs (combined into 2001 chart below)

2001: 2 IPOs (see one chart below)

Seattle Genetics, ZymoGenetics, Alcon, BioDelivery Sciences, MiddleBrook Pharmaceuticals, Micromet, Nitromed,

2000: 22 IPOs (see three charts below)

Antigenics, InterMune, Sangamo, Lexicon Pharmaceuticals, Exelixis, Dendreon, Pain Therapeutics

Decode Genetics, Arena Pharmaceuticals, Keryx Biopharmaceuticals, Inspire Pharmaceuticals, Medicines Co., Telik, Dyax

ISTA Pharmaceuticals, Durect, Pozen, Crucell, Adolor, Array BioPharma, Rigel Pharmaceuticals, GenVec

A note about how we calculated returns:

Our program calculated IPO returns based upon their IPO offer price and not the IPO’s (often inflated) first day of trading share price. For example, the first biotech IPO of the 21st century was Antigenics (Nasdaq: AGEN). It had an IPO offer price of $18.00 a share but opened its first day of trading (February 04, 2000) at $45.00 a share according to Hoovers or $41.00 a share according to bigcharts.com.

Antigenics ended the first quarter of 2009 trading at $0.49 a share and our program calculated Antigenic’s returns based on its $18.00 a share offer price and not its $45.00 or $41.00 a share first day of trading open price. This is an important distinction because the vast majority of drug developers opened their first day of trading at or above their offer price and only at this point could most retail investors have bought their shares. If we had used the first day’s open price for our returns calculation, drug developer IPO returns would be worse looking.

Also, our program does not calculate dividends, which only a few of these drug developers like Alcon (NYSE: ACL) pay. It does account for the special case of Abraxis (Nasdaq: ABII), which spun-out APP Pharmaceuticals and the fact that APP was subsequently acquired (although the final acquisition value of APP won’t be fully determined until a possible special $6.00 a share dividend to APP shareholders in 2011)

*This list does not include reverse mergers, which has been another common route for new drug developers to enter the stock market.

** One note of caution, we used Yahoo Finance to create these charts because they look nice visually but Yahoo Finance does not calculate a company’s historical returns exactly right so (for example the year 2000 chart with InterMune in it only has InterMune returns starting from June despite the fact that InterMune started trading on the Nasdaq in March of that year) use these charts as general visual guides only.

Dendreon (Nasdaq: DNDN) April 14, 2009 top-line IMPACT phase 3 study results conference call transcript with analyst question and answer session:

MITCHELL GOLD (Dendreon CEO and President) Prepared Remarks

GOLD: Hello everyone and thank you for joining us today. As you have seen early this morning in our press release, we are very please to announce that our pivotal phase 3 IMPACT study met its pre-specified primary endpoint showing that Provenge significantly prolonged overall survival in men with advanced prostate cancer.

IMPACT was a randomized multi-center double-blind placebo controlled phase 3 study that enrolled 512 men with metastatic androgen-independent prostate cancer. This study, also referred to as 9902B, was conducted under a Special Protocol Assessment (SPA) agreement with the FDA.

There is an urgent need for oncology treatments that prolong life combined with a favorable safety profile for patients with few currently appealing treatment options. We are pleased that the results of the IMPACT trial were consistent with those of our other phase 3 studies.

I’m sure everyone has questions about the results, but as is customary, we are not sharing more details as this time in order to honor the embargo policies of the American Urological Association. We will be presenting the data in a plenary session in two weeks on Tuesday, April 28.

Today is a historic day for patients, our industry, for those in the scientific community, and certainly for Dendreon. I would like to take a moment to recognize and thank those who have helped make this significant clinical advancement possible: First we want to recognize and thank the clinical investigators, their teams, and the more than 1,000 prostate cancer patients and their supportive families who have participated in our clinical trials over the past decade.

I can personally attest to the fact that the diagnosis of cancer is one of the most devastating experiences for patients, their families, and their friends to have to endure. Choosing a treatment path is no easy task. Deciding to participate or asking your patient to participate in a clinical trial that is evaluating a potential new frontier to fight cancer is a grave undertaking.

We are thankful to the scientific community that has been pursuing the concept of harvesting the immune system to fight cancer for decades. Until Provenge, this goal has been elusive. Today’s data validates the potential of this approach in a large phase 3 randomized controlled clinical trial that confirms the results we observed in our previous studies.

We want to thank all of our colleagues in the biotech community who have supported us over the years and encouraged us to persevere through some challenging times. Over the past thirty years, the American biotech industry has discovered and developed many important new drugs to address some of the world’s greatest medical challenges. Today’s news reminds us how U.S. biotechnology companies can continue to innovate in all that can be accomplished by our industry.

The outcome of today’s IMPACT trial could not have occurred without the access to capital that is required to develop innovative new product candidates like Provenge. For (because) the new frontiers in medicine is both costly and risky.

Over the years, several key investors have shared our passion and belief and supported the company’s efforts to develop the first cancer immunotherapy. Finally, I would personally like to thank all of our employees, both past and present. Due to your dedication, hard work, and commitment, we have achieved a major milestone together

Today’s news allows us to advance Provenge through the regulatory process to potentially help the many prostate cancer patients who currently have few appealing treatment options. (4:43 mark)

As you may recall, the FDA requested that we provide additional evidence in support of our efficacy claim for Provenge and indicated that a positive final analysis of survival, as described in the IMPACT Special Protocol Assessment agreement would support licensure and enable us to amend our Biologic License Application (BLA) for Provenge.

Because the data meet the criteria and specifications outlined in the SPA, Dendreon intends to file an amendment to its existing BLA in the fourth quarter of this year to seek licensure of Provenge. We will also be preparing our manufacturing, sales, and marketing operations to ensure we are well positioned to successfully launch Provenge

As you know, Provenge employs our novel proprietary antigen delivery cassette technology that may be leveraged to develop similar products to treat breast, colon, bladder, kidney, and multiple other types of cancer. The IMPACT results renew and validate our confidence in this platform technology and our abilities to extend its benefits across other cancer types. We will be evaluating a more comprehensive development plan to expand our cancer immunotherapy product pipeline.

We anticipate that many of your will have more in-depth questions about our featured commercialization and clinical development plans and therefore we plan to hold an analyst day this summer to review our plans in greater detail.

We are very proud to share this news with you today and will look forward to sharing more in two weeks at the AUA meeting and beyond as we make progress toward bringing the first active-cellular immunotherapy to the market.

It is my personal hope that this news will re-ignite the belief that the diagnosis of cancer is not hopeless and that there will be treatment options that prolong life with minimal toxicity.

The most meaningful science is often the most controversial. Innovative work being done by cancer scientists across the globe must continue and funding of these programs must increase. We have a belief here at Dendreon called “patients first”. What this means is that by putting the patients first in all of our decisions, we believe we will conduct the best science, return the most value to our shareholders, and create the best, most innovative products to help patients. Today’s results are an important step in the realization of that mission.

At this time I’ll turn the call back over the operator and we’ll open the phones for some Q&A. (7:20 mark)

(Q&A instructions…)

Questions from MARK MONANE of Needham & Company (8:09 mark)

MONANE: Good morning and thank you very much for reviewing the press release and the information with us. Could you spend some time Mitch helping us understand how good the data by going over first what the pre-specified criterion are and maybe help us think how to look at the robustness of the data?

GOLD: Sure. Thanks Mark for the question. First off, let me say that the results are unambiguous in nature. It was a clear hit on the pre-specified endpoint of overall survival.

We’re not going to get into any additional detail on that as we’re going to honor the embargo policies of the American Urological Association and allow that to be presented in an academic forum but the results were robust and they held up to multiple sensitivity analyses.

MONANE: In terms of the next steps, its seems that the BLA application will be amended and submitted in the fourth quarter of this year. Is that right? And what steps need to take place from now (until) then in order to help ensure, help increase, the chances of approval and FDA sign-off?

GOLD: As we said in our press release and our prepared comments, the company plans to complete its amendment to the BLA in the fourth quarter of this year and I’ll let David (Urdal)(Dendreon’s Chief Scientific Officer) go into more detail on the second part of your question.

URDAL: Actually Mark, I missed the second part of your question. I’m not sure…the focus of the company is going to be to really get the application complete response letter wrapped up by the fourth quarter of this year and I think we have all aspects of that well in hand.

MONANE: I’ll let my colleagues proceed but I want to say that we’ll look forward very much to hearing about the prostate cancer results at the AUA meeting and we recognize the enormity of suffering of patients. We look forward to the full dataset release.

Questions from RENI BENJAMIN of Rodman & Renshaw (10:34 mark)

BENJAMIN: Let me first congratulate you guys on obviously an effort and results…(mumbling) Clearly a long time coming so congratulations.

GOLD: It’s been a long row to hoe (a long journey) and we’re very pleased with the results we saw today.

BENJAMIN: It’s terrific and we look forward to the final results. Just building on Mark’s earlier question, could you just review what the pre-specified…and from what I understand it’s overall survival but I’ve forgotten… is it a p-value of .05? Has it been modified at all to some other p-value of .04? Could you just remind us of what that pre-specified value is?

GOLD: Just to remind you, the overall alpha for the study was .05 as defined in the SPA. The company spent a very small amount of alpha on the interim analysis so the majority of the alpha was reserved for the final analysis of overall survival.

As I said to Mark, we’re not going to get into details of that but it was an unambiguous hit on the primary endpoint of overall survival in terms of statistical significance. And I think importantly Rem, the results that we’re seeing here are very consistent with what we’ve seen in our other phase three trials of Provenge in other studies so we’re seeing a consistent result in IMPACT as we’ve saw in our other phase 3 clinical trials.

BENJAMIN: You mentioned that the safety as well was very consistent with the previous trials. Did you see anything unusual at all from this trial?

GOLD: No we’re not seeing anything in the primary analysis that looks different from our previous studies.

Questions from JOEL SENDEK of Lazard Capital Markets (12:30 mark)

SENDEK: A couple of questions maybe with the same idea, maybe asked a different way. On the trial design, you mentioned that it’s an unambiguous hit on statistical significance. I was wondering if you could say the same thing on clinical significance.

GOLD: The trial met its pre-specified design criteria Joel and I think that in terms of the median survival benefit, it was very consistent with what we’ve seen in our other studies and also when you look at look at kind of the landmark analyses, it is consistent with the other studies.

So I think we are very please with what we’ve learned from the results from the IMPACT study. There’s no doubt in the clinical community that overall survival is the most clinically meaningful endpoint, the one that is the most reliably (effective), and the one that is most meaningful to the patients.

SENDEK: When you’re mentioning other studies, is it safe for us to refer to the Taxotere improvement, which was 15% in overall survival? Is that a good benchmark?

GOLD: You know, I think we’ll let the data speak for itself as it’s presented at the American Urological Association meeting. I think to get some color on it (the data), it is consistent with what we’ve seen in our other phase 3 clinical trials.

SENDEK: Can you speak on a different topic? Can you speak to whether was any crossover in the IMPACT study?

GOLD: Yeah, there was crossover in the IMPACT study just as there was in our two previous phase 3 studies. The crossover rate was roughly the same as we saw in those studies but keep in mind that even if a patient is eligible to crossover, we still have to include them in the placebo arm of the study, which may dampen the overall effects of survival. So we were able to show a survival benefit even in the face of a crossover arm.

I’ll also remind you Joel that the crossover product is not identical to Provenge. It’s a frozen version of the product that is basically like three infusion ones. You do one apheresis, it gets broken down…one-third gets infused into patients and two-thirds get frozen down for the re-infusions for the salvage protocol…It’s not an identical product to Provenge.

SENDEK: Ok and then my final question is: On the original complete response letter you have some 483s, some CMC (Chemistry, Manufacturing, and Controls) issues. I’m wondering if those are all resolved at this point?

GOLD: Yeah, we’ve substantially addressed most of the CMC issues. We won’t get final resolution on those until we complete our license application with the FDA and get feedback from them.

Questions from DAVID MILLER of Biotech Stock Research (15:05 mark)

MILLER: The first question I have is on the manufacturing side of it: How are you going to handle the scale-up plans? Are you going to start that investment process now or are you going to wait until after the CMC part of the BLA is wrapped up?

GOLD: Let me take the first part of that and then Dave or Greg can add anything on it if they’d like. So I think the company is in a fortunate position first off. We’ve already built out the initial phase of our commercial manufacturing facility in New Jersey and that was part of our pre-approval inspection we went through as part of our license application we went through in 2007.

We are fortunate in that we’ve processed over a 1,000 patient samples through our clinical trials and that was advanced prostate cancer and the New Jersey facility has been processing those samples over the last several years. This is a facility that we have a lot of experience with and it’s a facility that we feel we could expand very readily.

The CMC issues which I think that you are referring to. We believe we have substantially addressed. We’ve had preliminary discussions with the agency on most of those issues but you won’t get final resolution of that in writing until you complete your license application to the agency.

MILLER: Right…

GOLD (interrupting): And the plan on build-out is…As I’ve said in my prepared comments, we plan to begin building out our sales and marketing infrastructure as well as looking at the commercialization plans going forward and we’ll get into that in a lot more detail in our analyst development day this summer.

MILLER: Can you talk a little bit about the steps you’re going to need to do until the fourth quarter over the next six months or so to get this ready to go? The only surprise that I have is that the BLA will take until the fourth quarter to amend.

GOLD: I’ll let Mark (Frohlich) chime in if he likes but I don’t think that should be a big surprise. This is a study that enrolled 500 men with metastatic advanced prostate cancer. It’s been going on now for almost six years so there’s a tremendous amount of data for us to compile and include in this application.

One of the important things to remember about IMPACT, this is a landmark study. Not just because it’s the first cancer immunotherapy to show an overall survival benefit but this is probably the longest follow-up that we’ve ever seen in a randomized phase 3 clinical trial of men with advanced prostate cancer, so it’s very meaningful in terms of how this disease population behaves.

So it’s very important that we put together a high-quality amendment to the FDA and we’re committed to doing that by the fourth quarter of this year.

MILLER: Are you still planning on making a presentation on the 28th at AUA?

GOLD: Yes…today was obviously top-line data…

MILLER: (interrupting) I’m just talking more about the date. I know you are going to be at AUA. I just want to make sure what the date is to make our travel plans for Chicago.

GOLD: Just to be specific, it’s April 28. I believe it’s at 2:20

MILLER: And the last question I have is talking about how your sales scale up: A) Have you talked to Jim yet? And B) How are you looking about the European partnership side of it?

GOLD: So our plan is obviously to commercialize this product ourselves in the United States. We’ve carried the lion’s share of the risk for this product going forward and to continue our discussions seeking a commercialization partner for Provenge outside the U.S.

Certainly Jim has got a lot of experience with a product like Provenge. In today’s world, the ability to launch a first in class product is going to attract a lot of interest from a lot of talented sales professionals. We’re going to look at the full gamut of potential leaders for that organization as we go forward.

MILLER: Right. So what stage is European partnering at this point?

GOLD: As is customary, we are not going to comment on those discussions.

MILLER: Ok, alright. Well, gentlemen, congratulations again. David, Greg, Mark, Mitch, it’s been an interesting time over the last few years and I couldn’t be happier that IMPACT got across the finish line.

GOLD (and others): Thanks David

Questions from AARON RINGS of Wachovia Securities (19:36 mark)

RINGS: Thanks for taking my questions and congratulations on the results. As a follow-up on the manufacturing side, I was wondering if you could provide us with some sort of range or clarity as to what might it be to cost…err what it might cost to manufacture the therapy on a per-patient basis? And then, what we should think about in terms of pricing for the therapy? I know it’s very early on but I was wondering if you could provide us some ranges or some other examples as to what types of therapies we should think about since the (Provenge infusion) process is more extensive?

GOLD: Well first off Aaron, it is early on and a price for Provenge has not been determined yet. When you look at Provenge as a product, it is a product that in clinical trials has shown that it prolongs survival and it has, what we think, is an appealing safety profile…and represents what patients are looking for, which is a high therapeutic index.

Just to reinforce, we haven’t determined a price for the product yet but we would expect it to be priced similar to other biologics in the oncology space.

RINGS: In terms of the cost of manufacturing on a per-patient basis, I know that you aren’t at scale, but can you provide a way to think about that because I’m sure it’s a lot more entailed than even some of those biologics.

GOLD: We’re not going to get into that on any detail now. We may go into that in a little more detail in our upcoming analyst event this summer.

RINGS: Ok and then since we just had top-line results, and I know you haven’t had a whole lot of time with the data, can you point us to the types of patients that benefited the most and the best way to think about the market in its entirety? Both those (patient groups) studied and in other areas of prostate cancer based on the results that you have?

GOLD: So one of the interesting parts when we looked at the data and one of the most important analyses you can do is see if the survival benefit you are able to show in the intent-to-treat population is consistent across subgroups. So when you look at the subpopulations, we see that survival benefit is consistent across all subpopulations in the study. I think that was very reassuring to us.

Questions from JOHN SONNIER of William Blair & Company (21:59 mark)

SONNIER: I just wanted to see if we could look forward a little bit, recognizing that we’re going to get the full data set and also recognizing that you’re going to have the analyst meeting this summer. Can you at least talk a little bit at a top-line level about how this plays out?

So you file the amendment Q4. Talk about when you might anticipate approval and against that, I’m trying to gauge, what size (of) a commercial scale-up will be necessary? I think it’s going to be relatively specialized commercial skill-set you’re looking for. I’m just trying to get a sense in my mind of just how much time you have to really get the organization ready to launch (Provenge)?

GOLD: That’s a process John…the commercial readiness of the organization…is a process that we started several years ago when we were filing our application with the FDA and it’s something that we are now going to invest in a lot more aggressively as we go forward.

That being said, the application will go in (during) the fourth quarter of this year. It will be what’s called a “Type 2” resubmission so the FDA will have six months to review the application once we submit it to the agency.

Follow-up questions from MARK MONANE (23:43 mark)

MONANE: Mitch, can you help us define who you think is the optimal population…we’ve seen a lot in the literature about metastatic, hormone-refractory, castration-resistant… who is the optimal patient that could benefit from Provenge in the real world and how many (of those) patients are there?

GOLD: I think we have to look at, Mark, the patients we studied in our clinical trials. And those are men with metastatic androgen-independent prostate cancer. So they have metastatic lesions, either a soft-tissue lesion or a bony lesion, and they have rising PSAs (Prostate-Specific Antigens) in the face of castrate levels of testosterone.

There is an emerging term coming out, changing “androgen-independent” into “castration-resistant”, they’re really one and the same but the nomenklatur is important because it suggests you may still have certain patients that are slightly responsive to hormonal treatments…that are not totally androgen-independent.

We look at them (the androgen-independent and castration-resistant terms) as one and the same but we look at it as an important concept to understand physiologically that some of these patients are still responsive to hormonal manipulation.

We see this as a…when we conduct our clinical studies…and we talked about this in our corporate presentations. This data supports Provenge being used as front-line treatment in men with metastatic androgen-independent prostate cancer.

So if you look at the continuum of care: They (prostate cancer patients) would have surgery or some form of local therapy as their primary form of treatment, if they recurred they would go on some form of androgen ablation therapy, and once their PSAs are rising (then) Provenge would come into play as a potential treatment option for them.

MONANE: Got it. And then I know that you are a card-carrying urologist (to Mitchell Gold) and this (the IMPACT results) is going to be presented at the urology meeting. Maybe you could spend a moment…is this an oncologist’s drug? Is this an urologist’s drug? How are you thinking about positioning Provenge in the future?

GOLD: We position Provenge as an important potential new treatment modality for men with metastatic androgen-independent prostate cancer. It turns out that both the oncologists and the urologists are important caregivers of that patient population.

If you look at our clinical studies, about 50% of our clinical trial sites were urologists and about 50% of our clinical trial sites were oncologists. So we see a kind-of evenly spread amongst the two patient populations.

And I’ll use this an opportunity to answer another question that John Sonnier had: When you look at the commercialization requirement from a sales force perspective, it’s not a huge sales force. You need about 100 sales reps total to commercialize a product like Provenge to those two physician segments.

So there really is an optimal scenario where you have a very large patient population being taken care of by a relatively small physician segment that is easy to target through a modest sales force.

MITCHELL GOLD final remarks (27:00 mark)

GOLD: Thank you all again for joining us today. We believe this is truly a break-through for the prostate cancer community and a testament to the promise of the field of cancer immunotherapies. Thanks again for joining us and we look forward to seeing many of you in the near future.

If you enjoyed this post then please click below:

The accompanying IMPACT Top-line study results press release from Dendreon can be seen here:

investor.dendreon.com/releasedetail.cfm?ReleaseID=376922

Copious amounts of information and data from Dendreon’s two previous phase 3 studies, d9901 and d9902a, can be seen below:

www.fda.gov/ohrms/dockets/ac/07/briefing/2007-4291B1-00-index.htm

Actually the title of this article should be “Take That Non Pre-defined Registrational Study Analysis and Shove It” but that title was too long to fit in the space. Subset/subgroup analyses and other non pre-specified data analyses of clinical trials are actually very useful tools in the biostatistician’s toolbox but are highlighted far too often by pharmaceutical companies to mask poor data.

Lets talk about why biostatisticians so often look unfavorably at non predefined data analyses. As mentioned by Richard Simon in PATIENT SUBSETS AND VARIATION IN THERAPEUTIC EFFICACY:

Suppose that we have randomly assigned treatments A and B and partition our patients into G mutually exclusive subsets. For each subset we perform a statistical significance test and declare a difference statistically significant’ if the calculated significance level is α or smaller. We obtain one ’significant’ difference using α = 0.05, but someone points out that even if the treatments are identical the probability of obtaining at least one significant result is 1 -(1-α)^G

Put another way, even if a drug has no clinical effect whatsoever, just by pure chance the probability is 2 out of 5 (40%) that at least one subset analysis of it out of ten in a study will show a statistically significant p-value of 0.05 or less.

This also applies to primary analyses as well. For example, if I tried testing my old smelly shoe versus placebo as a cancer treatment and I ran three clinical trials of this novel smelly shoe cancer treatment versus placebo, just by dumb luck about 14% of the time at least one of my studies would show a statistically significant (at the 0.05 one-sided level) result on the three studies’ primary endpoint even though my old smelly shoe has no efficacy against any cancer.

                PROBABILITY OF SEEING AT LEAST ONE FALSE-POSITIVE RESULT
               IN X TESTS (OR STUDIES) OF TWO PLACEBOS AGAINST EACH OTHER

                                                         Significance level
                                                       1.0%       2.5%       5.0%
                                  # of tests
                                      5                4.90%     11.89%     22.62%
                                      4                3.94%      9.63%     18.55%
                                      3                2.97%      7.31%     14.26%
                                      2                1.99%      4.94%      9.75%

There are ways to minimize the odds of falsely accepting an incorrect subset or primary analysis. The best ways to prevent these kinds of incorrect conclusions, which statisticians call a type 1 error, are to:

CONFIRM RESULTS BY TRYING TO REPEAT THEM

This possibility of a study producing false-positive results just by chance is why the FDA almost always requires a statistically significant efficacy result to be repeated at least once with a second well-balanced randomized controlled study before it will approve a drug.

As FDA reviewers so often mention, the chance of falsely accepting an incorrect hypothesis from one clinical study at the 0.05 alpha level (two-sided test) is 1/40 or 2.5% whereas the chance of falsely accepting an incorrect study endpoint that produced statistically significant results in two clinical studies is (1/40)*(1/40)=1/1600 or .0625%

PRE-SPECIFYING A STUDY’S PRIMARY ENDPOINTS AND SUBSET ANALYSES

For any clinical trial there are hundreds of ways that its study data can be sliced, divided, and parceled out for subset and sensitivity analyses. To prevent drug companies from data-mining and self-selecting the subgroups, analyses, or endpoints that portray their compound in the best light, regulatory agencies like the FDA require them to pre-specify their study endpoints before undertaking registrational clinical studies and often force drug developers to pay a statistical penalty for delineating multiple primary clinical trial endpoints (if any one of which can be used for a drug’s approval).

So the next time you hear a drug developer reporting that its compound failed in a phase 3 registrational study but showed promise in a subset analysis, be sure to take a good hard look at the data and remember that there is a very high chance that even a smelly shoe will generate some statistically significant results on some analyses versus placebo in a clinical trial. Non pre-defined retrospective analyses are good for exploratory hypothesis-generating ideas, safety checks, and sensitivity testing but will generally not work as a means to get most drugs approved for marketing. Don’t fall for the hype.

For further reading on this topic click on the links below:

www.emea.europa.eu/pdfs/human/ewp/090899en.pdf

www.pubmedcentral.nih.gov/picrender.fcgi?artid=1427603&blobtype=pdf

With less than a month to go until Dendreon (Nasdaq: DNDN) releases pivotal clinical study results for its potential prostate cancer drug Provenge, lets go over a few points to consider when trying to determine the likelihood that its phase 3 IMPACT study will be a success.

1) Dendreon announced during its interim IMPACT study results release in October that there was a 20% reduction in the risk of death in the Provenge arm of the study relative to placebo” and that the final analysis will require Provenge to achieve a 22% reduction in the risk of death versus placebo to hit the study’s statistical significance target (some unknown figure south of 0.05).

Therefore the remaining Provenge patients in the study will have to show something better than a 22% reduction in the risk of death versus placebo for the study to be a success. This is a very important point that should not be lost on Dendreon investors.

Based on when drug developers like Onyx with Nexavar (sorafenib), Genentech with Avastin (bevacizumab) and Pfizer with Sutent (sunitinib) chose to do analyses in their pivotal studies as well as the survival data from Dendreon previous studies, our estimate would be that Dendreon undertook its interim analysis at some time between 65% to 80% of the 304 events in IMPACT.

Dendreon has made the point that in D9901 that the survival advantage seen with Provenge grew over time (i.e. the separation between the Provenge and placebo survival curves grew) so if you believe that Provenge truly does work then this is something to hang your hat on.

2) The next point that we wanted to bring up was something that some of the analysts on the interim IMPACT study results conference call in October seemed a little confused about. If the final analysis requires a 22% survival advantage to hit statistical significance then unless Dendreon went completely crazy and allocated the majority of its alpha (0.05) to the interim analysis, the p-value hurdle to overcome for the interim analysis had to have been harder than for the final analysis.

There are three key variables that affect the odds of the IMPACT study’s final analysis being successful:

• The p-value hurdle: This is normally 0.05 but since Dendreon allocated some portion of that alpha to the interim analysis then the final   p-value hurdle will be something south of 0.05

• The number of events in the analysis: The more data points there are, the more precise the data produced will be.

• The size of the treatment effect

The three variables above that will determine IMPACT’s success are why we are upset with Dendreon’s decision to move up the expected date of its final analysis from 2010 to 2009. Last year Dendreon decided to give up some of the alpha that was intended for the interim analysis and allocate it for the final analysis (a good decision) but then in order to get the final analysis sooner than 2010, Dendreon allocated fewer events (304 versus 360) to the final analysis, which strikes us as bad and not a very conservative thing to do when Dendreon could have just kept the 360 events for the final analysis and thereby improved the power of the study.

3) One thing that always raises the chances of something going wrong is when study enrollment criteria gets changed after a clinical trial has already begun.

Dendreon had valid reasons to change its enrollment criteria for IMPACT back in 2005 (two years after the start of the study) and the use of a Cox  model to analyze IMPACT’s data does provide an added measure of safety against possible enrollment imbalances. We’ll also note that Dendreon’s CRO appears to have done a good job of balancing D9901 and even D9902A despite those being much smaller studies.

Nevertheless, it has been our experience that the unexpected often seems to happen when data results day comes up or FDA review time rolls around after studies have been amended multiple times.

4) Shares of Dendreon rose 38% last Friday on news that the American Urological Association saved a spot in its annual meeting for Dendreon to present the final IMPACT results if they are ready in time for the meeting. This adds nothing new to the Dendreon story and the fact that a medical meeting saved a spot for the IMPACT data does not increase the odds that IMPACT will be a success, nor does it hint that IMPACT has already produced good results.

What the AUA placeholder does tell us is that if IMPACT hits its survival endpoint, it will be extremely significant news worthy of headlining a major medical meeting. This is something that everyone should know already though, considering that Sanofi-Aventis’ (NYSE: SNY) Taxotere (docetaxel) is the only FDA-approved therapy that has shown an overall survival benefit as a treatment for metastatic prostate cancer.

If Dendreon knew the IMPACT data already, they would have to release at least the top-line results to the investment world or face the investor class action lawsuits. That’s why the AUA placeholder does not alter the odds we ascribe to IMPACT’s success.

5) With most upcoming clinical trial results we have to worry about not just the efficacy data but the safety data as well. Due to the terminal nature of androgen independent prostate cancer and Provenge’s relatively benign safety record in previous studies, we are not too concerned about what sort of adverse event data Provenge might produce in IMPACT.

There was some cerebral vascular events seen with Provenge but since it is not being proposed for an early stage of prostate cancer yet, we can discount these safety issues being a potential impediment to Provenge’s marketing approval.

6) Our final point of concern is that so much about how prostate cancer is treated has changed since 2000 (when D9901 began enrolling patients). Prostate cancer survival times have been improving quite a bit (although data from the 21st century is not out yet) and with treatment and so much else surrounding prostate cancer changing in the time span between IMPACT results and D9901  study results, the odds of the unexpected happening are higher than if IMPACT data was coming out closer to when D9901 survival data was announced (back in 2004).

Now here’s the part where we put on our investor hats and ignore the fact that we are always rooting for new medical advances: we wouldn’t feel comfortable going long or short Dendreon’s shares at its current $6.30 share price (April 10). If Dendreon hadn’t changed the study enrollment criteria for IMPACT, if Dendreon had chosen to raise the final powering of IMPACT when it lowered the interim analysis powering, and if IMPACT’s results weren’t so far removed in time from Dendreon’s previous Provenge phase 3 studies then we would have more comfort in forming our expectations for IMPACT’s final results.

While we believe the odds favor IMPACT failing its primary overall survival endpoint, perhaps a 70% probability based on the above factors and the general stochastic nature of clinical trials*, the payoff to being right on IMPACT failing is not large enough (at Dendreon’s current share price) to compensate for the still very real possibility that IMPACT does hit its primary endpoint when top-line results are released later this month. In other words, we feel that Dendreon is in its fair valuation range at its current $630 million enterprise value (accounting for its convertible notes) ahead of IMPACT’s study results.

If Dendreon’s shares reach the $8.15 mark (an approximate $810 million enterprise value) we would feel comfortable enough to recommend a short bias (with hedges) towards Dendreon ahead of IMPACT. If its shares fall below $3.60 (an approximate $360 million enterprise value) , we would be comfortable saying that Dendreon’s upside potential outweighs its downside risks. Unless Dendreon reaches either of those two points ahead of IMPACT we’ll be happy to recommend following the IMPACT final results release from the sidelines. In our opinion the payoff for being right on IMPACT just doesn’t justify the risks at this point.

* Even a study powered 80% to show statistical significance on its primary endpoint (if a drug’s effect is real) will fail  an average of 1 out of 5 times and that also assumes the powering assumptions are accurate (which they may or may not be for IMPACT)

For further reading click below:

www.fda.gov/ohrms/dockets/ac/07/briefing/2007-4291B1_2a.pdf

www.biotechspeculators.com/archives/235